Skip to main content

Advertisement

Log in

Answering economic inequality other than with populism and protectionism: the Danish formula of inclusive capitalism

  • Original Paper
  • Published:
Asia Europe Journal Aims and scope Submit manuscript

Abstract

EU politics have experienced vast changes since 2014 from the rise of anti-globalization populist right parties to Brexit. Similarly, populist and nationalist sentiments also appeared in some Southeast Asian democracies such as Taiwan and the Philippines. Despite their national and regional differences, one common characteristic of these developments was that it was those left-behind and economically disadvantaged voters who delivered such results. Trade protectionism and populist nationalism were their answers to ever-growing economic inequality. The growing economic inequality thus has become a common policy challenge to both European and Asian leadership. While political and business elites appealed to inclusive capitalism to address the economic inequality, no holistic, realistic policy combination was ever proposed. This paper is an attempt to translate inclusive capitalism from aspiration to systematic policy actions by employing an Inclusive Development Index (IDI) to the study of an indicative country—Denmark. It was found that those areas which Denmark has been performing well in were areas surrounding acquired equal opportunities: quality public education, health and active labor market policies for developing personal capability from childhood to adulthood, and uncorrupted public services and business-friendly legal and tax regimes for facilitating market competition from business creation to operation, especially for small businesses. Governance was a key to the functioning of this self-producing policy ecosystem, centrally staged as a big investor and enabler for both labor and capital. The distinctive thinking underpinning policy-making—treating economic policies as social policies and vice versa—reconciled economic growth and distributive justice simultaneously, resulting in inclusive capitalism in day-to-day realities. The Danish formula has shown that it was not capitalism that needed to reform, it was the prevailing liberalist orthodoxy that guided governance that was in desperate need of an overhaul.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

Notes

  1. This paper recognized that Denmark was not exempted from the rise of PRPs. The anti-immigration Danish People’s Party has risen in the 2014 European Parliamentary Election and 2015 general election. However, different from other PRPs in the UK and France, its rise was believed largely due to unexpected external factors—the refugee/migrant crisis and the EU’s introduction of compulsory quotas in 2015 at the height of the crisis, rather than the defects of its own politico-economic system. Its support has been in decline since 2016 in the latest polls.

References

  • Aghion P, Caroli E, Garcia-Penalosa C (1999) Inequality and economic growth: the perspective of the new growth theories. J Econ Lit 37(4):1615–1660

    Google Scholar 

  • Andreasson U (2017) Trust-the Nordic gold. Nordic Council of Ministers, Copenhagen

    Google Scholar 

  • Aoun J (2018) ‘Robot-proof: how to protect jobs in an AI future’, Speech Transcript to the Royal Institute of International Affairs, London

  • Barro RJ (2000) Inequality and growth in a panel of countries. J Econ Growth 5(1):5–32

    Google Scholar 

  • Berg AG, Ostry JD (2011) Inequality and unsustainable growth: two sides of the same coin? In: IMF Staff Discussion Note, SDN/11/08. IMF, Washington, DC

    Google Scholar 

  • Berg J (2017) ‘Financial stability and financial sector policies in Denmark’, Speech of Director General of the Danish Financial Supervisory Authority at Special Event of Joint Vienna Institute, Vienna

  • Bonoli G (2012) Active labor market policy and social investment: a changing relationship. In: Morel N, Palier B, Palme J (eds) Towards a social investment welfare state? Ideas, policies and challenges. The Polity Press, Bristol, pp 181–204

    Google Scholar 

  • Bourguignon F (1981) Pareto superiority of unegalitarian equilibrium in Stiglitz’ model of wealth distribution with convex saving function. Econometrica 49(6):1469–1475

    Google Scholar 

  • Brons-Petersen O (2015) The Danish model: Don’t try this at home. In: Economic Development Bulletin No.24. Cato Institute, Washington, pp 1–3

    Google Scholar 

  • Causa O, Hermansen M, Ruiz N, Klein C, Smidova Z (2016) Inequality in Denmark through the looking glass. In: OECD Economics Department Working Papers No.1341. OECD, Paris

    Google Scholar 

  • Chiang HC (2016) ‘Countdown to the Philippine presidential election: why Duterte keeps leading?’, ASEAN Plus, 2 May 2016, available at https://aseanplusjournal.com/2016/05/02/aseansea0503/ (accessed 31 August 2018) (in Chinese)

  • Chong JHWC (2010) Danish mortgage regulations—structure, evolution, and crisis management. Washington University Global Studies Law Review 9(2):371–398

    Google Scholar 

  • Cingano F (2014) Trend in income inequality and its impact on economic growth. In: OECD Social, Employment and Migration Working Papers No.165. OECD, Paris

    Google Scholar 

  • Copenhagen Capacity (2018) ‘Taxation in Denmark’, http://www.copcap.com/set-up-a-business/taxation (accessed 30 April 2018)

  • Credit Suisse Research Institute (2017) Growth Wealth Report 2017. Credit Suisse, Zurich

    Google Scholar 

  • Deloitte (2015) Taxation and Investment in Demark 2015. Deloitte Touche Tohmatsu Limited, London

    Google Scholar 

  • Dinesen PT, Sonderskov KM (2015) Ethnic diversity and social trust. Am Sociol Rev 80(3):550–573

    Google Scholar 

  • Eurofound (2017) Social mobility in the EU. Publications Office of the European Union, Luxembourg

    Google Scholar 

  • European Commission (2016) 2016 SBA Fact Sheet: Denmark. European Commission, Brussels

    Google Scholar 

  • Eurostat (2018a) ‘Government expenditure by function—COFOG’, 13 March 2018, http://ec.europa.eu/eurostat/statistics-explained/index.php/Government_expenditure_by_function_%E2%80%93_COFOG (accessed 14 March 2018)

  • Eurostat (2018b) ‘Structural business statistics overview’, 5 February 2018, http://ec.europa.eu/eurostat/statistics-explained/index.php/Structural_business_statistics_overview (accessed 14 March 2018)

  • Galor O, Moav O (2004) From physical to human capital accumulation: inequality and the process of development. Review of Economic Studies 71(4):1001–1026

    Google Scholar 

  • Haldrup K (2017) On security of collateral in Danish mortgage finance: a formula of property rights, incentives and market mechanisms. Eur J Law Econ 43(1):1–29

    Google Scholar 

  • Helliwell JF, Layard R, Sachs JD (2018) World happiness report. Sustainable Development Solutions Network, New York

    Google Scholar 

  • Hemerijck A (2013) Changing welfare states. Oxford University Press, Oxford

    Google Scholar 

  • Hutton W (2015) How good we can be: ending the mercenary society and building a great country. Abacus, London

    Google Scholar 

  • IMF (2014) Denmark: financial system stability assessment, IMF country report no.14/336. IMF, Washington

    Google Scholar 

  • IMF (2017a) World Economic Outlook April 2017: Gaining momentum? IMF, Washington

    Google Scholar 

  • IMF (2017b) Fiscal Monitor: Tackling Inequality. IMF, Washington

    Google Scholar 

  • International Institute for Management and Development (IMD) (2017) New competitive global elite emerges in IMD business school’s latest world competitiveness ranking. In: News story. IMD, Lausanne

    Google Scholar 

  • International Labour Organization and Organization for Economic Cooperation and Development (2015) The Labour Share in G20 Economies. ILO & OECD, Geneva and Paris

    Google Scholar 

  • Institute for Public Policy Research (2017) Time for change: a new vision for the British economy. IPPR, London

    Google Scholar 

  • Jacobs M, Mazzucato M (2016) Rethinking capitalism: an introduction. In: Jacobs M, Mazzucato M (eds) Rethinking capitalism: economics and policy for sustainable and inclusive growth. Wiley-Blackwell, Oxford, pp 1–27

    Google Scholar 

  • Jensen M (2014) ‘The question of how Denmark got to be Denmark- establishing rule of law and fighting corruption in the state of Denmark 1660–1990’, Working Paper Series No.06, Goteborg: The Quality of Government Institute of University of Goteborg

  • Jensen H, Larsen JN (2005) The Nordic labour markets and the concept of flexicurity. In: Schubert CB, Martens H (eds) The Nordic Model: A Recipe for European Success? European Policy Centre, Brussels

    Google Scholar 

  • Johnsen HG, Grunfelder J, Moller MF, Rinne T (2018) Digitalisation for a more inclusive Nordic region. In: Grunfelder J, Rispling L, Norlen G (eds) The state of the Nordic region. Nordic Council of Ministers, Copenhagen, pp 160–169

    Google Scholar 

  • Jorgensen H (2002) Consensus, cooperation and conflict: the policy making process in Denmark. Edward Elgar, Cheltenham

    Google Scholar 

  • Karlsdottir A, Randall L, Norlen G (2018) Towards inclusive Nordic labor markets. In: Grunfedler J, Rispling L, Norlen G (eds) State of the Nordic Region, pp 74–86

    Google Scholar 

  • Klein C, Hansen LA (2016) Balancing inclusiveness, work incentives and sustainability in Denmark. In: OECD Economics Department Working Papers No.1338. OECD, Paris

    Google Scholar 

  • Kohler P (2015) Redistribution policies for sustainable development: looking at the role of assets and equity. In: DESA Working Paper No. 139 ST/ESA/2015/DWP/139. Department of Economic & Social Affairs of United Nations, New York

    Google Scholar 

  • Kumhof M, Lebarz C, Ranciere R, Richter AW, Throckmorton NA (2012) Income inequality and current account imbalance. In: IMF Working Paper, WP/12/08. IMF, Washington

    Google Scholar 

  • Kuttner R (2008) The Copenhagen consensus: reading Adam Smith in Denmark. Foreign Affairs 87(2):78–94

    Google Scholar 

  • Kvist J, Pedersen L, Kohler PA (2008) Making all persons work: Modern Danish labour market policies. In: Eichhorst W, Kaufmann O, Konle-Seidl R (eds) Bringing the Jobless into Work? Experiences with Activation Schemes in Europe and the US. Springer, Berlin, pp 221–256

    Google Scholar 

  • Lagarde C (2014) ‘Economic inclusion and financial integrity’, speech by Christine Lagarde, managing director, International Monetary Fund, 27 may 2014, London

  • Lanvin B, Evans P (2018) Country profiles. In: Lanvin B, Evans P (eds) The Global Talent Competitiveness Index: Diversity for Competitiveness. INSEAD, Fontainebleau, pp 111–233

    Google Scholar 

  • Lanvin B, Evans P, Rodriguez-Montemayor E (2018) Diversity as a lever for talent competitiveness. In: Lanvin B, Evans P (eds) The Global Talent Competitiveness Index: Diversity for Competitiveness. INSEAD, Fontainebleau, pp 3–34

    Google Scholar 

  • Laursen F, Andersen TM, Jahn D (2016) Denmark report: sustainable governance indicators 2016. Bertelsmann Stiftung, Gutersloh

    Google Scholar 

  • Lazer EP, Rosen S (1981) Rank-order tournaments as optimum labor contracts. J Polit Econ 89(5):841–864

    Google Scholar 

  • Lindberg G, Rispling L (2018) Economic development. In: Grunfelder J, Rispling L, Norlen G (eds) The state of the Nordic region. Nordic Council of Ministers, Copenhagen, pp 102–116

    Google Scholar 

  • Lundvall B (2002) Innovation, growth and social cohesion: the Danish model. Edward Elgar, Cheltenham and Northampton

    Google Scholar 

  • Lundvall B, Lorenz E (2012) Social investment in the globalizing learning economy: a European perspective. In: Morel N, Palier B, Palme J (eds) Towards a social investment welfare state? Ideas, policies and challenges. The Polity Press, Bristol, pp 235–257

    Google Scholar 

  • Madsen PK (2002) The Danish model of flexicurity: a paradise—with some snakes. In: Sarfati H, Bonoli G (eds) Labour market and social protection reforms in international perspective: parallel or converging tracks? Ashgate, Hampshire, pp 243–265

    Google Scholar 

  • McKinsey Global Institute (2016) Power than their parents? Flat or falling incomes in advanced economies. McKinsey&Company, London etc.

    Google Scholar 

  • McKinsey (2017) A future that works: the impact of automation in Denmark. McKinsey, Copenhagen

    Google Scholar 

  • Moran M (2015) It’s the democratic politics, stupid. In: Hay C, Payne A (eds) Civic Capitalism. Polity, Cambridge, pp 97–103

    Google Scholar 

  • Munich Security Conference (2017) Munich security report 2017: post-truth, post-west, post-order? Munich Security Conference, Munich

  • Nelson M, Stephens JD (2012) Do social investment policies produce more and better jobs? In: Morel N, Palier B, Palme J (eds) Towards a social investment welfare state? Ideas, policies and challenges. The Polity Press, Bristol, pp 205–234

    Google Scholar 

  • Neruda P (2010) Fair society, healthy lives, London: strategic review of health inequalities in England Post-2010

  • Norlen G (2018) Employment. In: Grunfelder J, Rispling L, Norlen G (eds) The state of the Nordic region. Nordic Council of Ministers, Copenhagen, pp 62–86

    Google Scholar 

  • Ostry JD, Berg A, Tsangarides CGT (2014) Redistribution, inequality, and growth. In: IMF Staff Discussion Note, SDN/14/02. IMF, Washington

    Google Scholar 

  • OECD (2006) Tax policy reforms in demark. OECD, Paris

    Google Scholar 

  • OECD (2014) OECD economic surveys: Denmark. OECD, Paris

    Google Scholar 

  • OECD (2017a) Bridging the gap: inclusive growth 2017 update report. OECD, Paris

    Google Scholar 

  • OECD (2017b) Revenue Statistics 2017: tax revenue trends in the OECD. OECD, Paris

    Google Scholar 

  • OECD (2017c) Highlights from OECD science, technology and industry scoreboard 2017- the digital transformation: Denmark. OECD, Paris https://www.oecd.org/denmark/sti-scoreboard-2017-denmark.pdf (accessed 21 June 2018

    Google Scholar 

  • Oxfam (2014) Even it up: time to end extreme inequality. Oxfam, Oxford

    Google Scholar 

  • Obama B (2014) State of the Union Address, https://obamawhitehouse.archives.gov/the-press-office/2014/01/28/president-barack-obamas-state-union-address(accessed 12 December 2017)

  • Perotti R (1996) Growth, income distribution, and democracy: what the data say. J Econ Growth 1(2):149–187

    Google Scholar 

  • Pittini A, Koessl G, Dijol J, Lakatos E, Ghekiere L (2017) The State of Housing in the EU 2017. Housing Europe, Brussels

    Google Scholar 

  • Putnam RD (2015) Our kids: the American dream in crisis. Simon & Schuster, NY and London

    Google Scholar 

  • Randall L, Karlsdottir A (2018) Education in an evolving economic landscape. In: Grunfelder J, Rispling L, Norlen G (eds) The state of the Nordic region. Nordic Council of Ministers, Copenhagen, pp 88–99

    Google Scholar 

  • Rasmussen PN (2005) Learning from the North—let’s focus on best practice in all of Europe. In: Schubert CB, Martens H (eds) The Nordic model: a recipe for European success, EPC Working Paper No.20. European Policy Centre, Brussels, pp 50–55

    Google Scholar 

  • Rehn-Mendoza N, Weber R (2018) Health and welfare. In: Grunfelder J, Rispling L, Norlen G (eds) The state of the Nordic region. Nordic Council of Ministers, Copenhagen, pp 170–182

    Google Scholar 

  • Rose C (2017) The relationship between corporate governance characteristics and credit risk exposure in banks: implications for financial regulation. Eur J Law Econ 43(1):167–194

    Google Scholar 

  • Schubert CB, Martens H (2005) Introduction. In: Schubert CB, Martens H (eds) The Nordic model: a recipe for European success, EPC Working Paper No.20. European Policy Centre, Brussels, pp 8–28

    Google Scholar 

  • Schraad-Tischler D, Schiller C, Heller SM, Siemer N (2017) Social justice in the EU—Index Report 2017. Bertelsmann Stiftung, Gurersloh

    Google Scholar 

  • Stiglitz JE (2013) The Price of Inequality. In: The price of inequality. W.W. Norton & Company, NY and London

    Google Scholar 

  • Stockhammer E (2015) Rising inequality as a cause of the present crisis. Camb J Econ 39(3):935–958

    Google Scholar 

  • Streeck W (2014) How will capitalism end? In: New Left Review, vol 87, pp 35–64

    Google Scholar 

  • Sundararajan A (2017) The future of work: the digital economy will sharply erode the traditional employer-employee relationship. In: Finance and Development, pp 7–11

    Google Scholar 

  • The Guardian (2017) ‘Ontario plans to launch universal basic income trial run this summer’, https://www.theguardian.com/world/2017/apr/24/canada-basic-income-trial-ontario-summer (accessed 15 December 2017)

  • Transparency International (2018) ‘Corruption perceptions index 2017’, 21 February 2018, https://www.transparency.org/news/feature/corruption_perceptions_index_2017(accessed 14 March 2018)

  • World Economic Forum (2017) The Global Risks Report 2017. The Economic Forum, Switzerland

    Google Scholar 

  • Wilkinson R, Pickett KE (2009) The Spiritual Level: Why Greater Equality Makes Societies Stronger. Bloomsbury Press, NY and London

    Google Scholar 

  • Wilkinson R, Pickett KE (2017) The enemy between us: the psychological and social costs of inequality. Eur J Soc Psychol 47(1):11–24

    Google Scholar 

  • Yamamura E (2012) Trust in government and its effect on preferences for income redistribution and perceived tax burden. In: MPRA Paper No. 39833. Munich Personal RePEc Archive, Munich

    Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Chih-Mei Luo.

Additional information

Publisher’s note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Luo, CM. Answering economic inequality other than with populism and protectionism: the Danish formula of inclusive capitalism. Asia Eur J 18, 139–155 (2020). https://doi.org/10.1007/s10308-019-00538-2

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10308-019-00538-2

Navigation